Thursday, May 24, 2017, 10:36 AM, EST
- NASDAQ Composite -0.57% Dow -0.78% S&P 500 -0.71% Russell 2000 -0.56%
- NASDAQ Advancers: 681 Decliners: 1431
- Today’s Volume (100 day avg) +11.4%
The week’s optimistic start has been tempered by the threat of more tariffs and word that the North Korea summit is formally cancelled. The markets opened about a half percent lower and we are currently at session lows. Other than Utilities (+0.4%) all sectors are in the red with Energy (-1.8%) and Financials (-1.4%) weakest. The White House suggested tariffs on auto imports could be in the works, but the threat is mostly viewed as a negotiating tactic and serves as a reminder that trade issues will not get quickly resolved as thought just a few weeks ago. Treasuries are seeing strength and the yield on the 2-year is at its lowest since May 3rd and the 10-year is back below 3.0%. Crude oil extends recent losses with a 1% decline, Gold however surges 1.2% while the dollar drifts 0.3% lower.
- Nothing to see here: Today’s economic data is largely in line with new and continuing unemployment claims ticking a little higher but still near historic lows. Sales of existing homes fell 2.5% in April, and though that is a little soft the market remains tight. Inventories declined 6.3% from last year and the typical home is on the market for only 26 days. Separately Zillow reports that national home values have risen about 8.7% from last April, the fastest pace since June 2006 with home values in 21 markets surpassing the peaks during the housing boom a decade ago.
- Yesterday we briefly mentioned emerging market debt. Today, another overseas item U.S. equities investors are watching: Italian Sovereign Debt. Last week news broke that a coalition of anti-establishment parties would form a government in Italy and may demand debt forgiveness. Credit Default swaps on Italian debt have risen sharply. One tranche covering 5 year debt traded above 150 yesterday and is changing hands at about 148 - vs. price below 90 just two weeks ago. Italy is much bigger than Greece so absorbing debt problem there would be significant. However, according to Mauldin Economics, nearly 70% of Italian debt is held by domestic savers. An additional 10% is owned by Italian banks. Only 5% of Italian debt is held by non-European institutions. So much of the debt “relief” if any, would come from taking assets from other Italians.
- Sell in May and go away…the holiday weekend is approaching but recent market conditions suggest some got an early start. Volumes have been soft and haven’t touched average since May 15th. Despite ever-changing news flowing out of DC investors are simply not reacting as they did 18-month ago. General shifts in sentiment result in modest rallies then declines, but for the most part the market is trending sideways with on the R2K index
- Nasdaq welcomes four IPOs that began trading this morning. GreenSky (GSKY) raised $874 million; Kiniksa Pharmaceuticals (KNSA) raised $153 million; Scholar Rock Holdings (SRRK) raised $75 million; and CLPS Incorporated (CLPS) raised about $10.5 million.
Technical Take: Treasury Yields – Know Your Time Frame
Last week the long US Treasury yield managed a breakout above the key 3.05% which was the previous multi-year high made back in January 2014. This level is seen by some pundits as the “trigger” of a large “double bottom” reversal pattern marking the end of a 35-year secular decline in rates. While bonds may very well be in the very early stages of a new secular bear market, we have previously highlighted this secular turn will be a process. More specifically we recently noted that despite widespread bearish views on bonds, as evident by record short positioning seen in the weekly COT reports, 3.05% would likely prove to be a formidable resistance level in the near to intermediate term where rates would likely begin a period of consolidation following the two-year sharp uptrend off the record lows of 2016. Circling back to the present, thus far bond bears are having a difficult time keeping yields above 3%, let alone 3.05%. Following Trump’s cancellation of next month’s North Korean summit, yields have declined to a level that is currently forming a “bearish engulfing” pattern on the weekly period candlestick. More concerning is the monthly period time frame where May is carving out a “gravestone doji” pattern right through the heart of the 3.05% level. With so many investors on one side of the boat positioned for higher yields, it may not take much (i.e. an escalation of rhetoric between two nuclear powers) to induce short covering. Thus while a secular bear may well be underway, cyclical or shorter term forces in the other direction may be ready to show themselves. Know your time frame.
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Nasdaq's Market Intelligence Desk (MID) Team includes:
Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.
Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.
Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.
Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).
Michael Sokoll, CFA is a Senior Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
